Silex Systems Ltd
Annual Report 2017

Plain-text annual report

S i l e x A n n u a l R e p o r t 2 0 1 7 ANNUAL REPORT 2017 IMPORTANT NOTICE FORWARD LOOKING STATEMENTS AND BUSINESS RISKS: Some risk factors that could affect future results and commercial prospects include, but are not limited to: the outcome of the GLE restructure; results from the SILEX uranium enrichment engineering development program being conducted jointly by the Company and GLE; the demand for natural uranium and enriched uranium; the time taken to develop the SILEX technology; the potential development of competing technologies; the potential for third party claims against the Company’s ownership of Intellectual Property; the potential impact of government regulations or policies in the USA, Australia or elsewhere; results from IQE’s commercialisation program and the demand for cREO™ products; and the outcomes of various commercialisation strategies undertaken by the Company and/or its Licensees GLE and IQE. Silex Systems is a research and development Company whose primary asset is the SILEX laser uranium enrichment technology, originally developed at the Company’s technology facility in Sydney, Australia. The SILEX technology, licensed exclusively to GE-Hitachi Global Laser Enrichment LLC (GLE) in the USA, is currently in the engineering scale-up stage and plans for commercial deployment remain speculative and high risk. Silex also has an interest in a unique semiconductor technology known as ‘cREO™’ through its ownership of subsidiary Translucent Inc. The cREO™ technology is exclusively licensed to IQE Plc based in the UK. IQE is progressing the cREO™ technology towards commercial deployment in various advanced semiconductor products. The outcome of IQE’s commercialisation program remains subject to technology and market risks. The commercial potential of these two technologies is currently unknown. Accordingly, the statements in this report regarding the future of the SILEX technology, the cREO™ technology and any associated commercial prospects are forward looking and actual results could be materially different from those expressed or implied by such forward looking statements as a result of various risk factors. SILEX SYSTEMS LIMITED ABN 69 003 372 067 CONTENTS CHAIR’S REPORT CEO’S REPORT BUSINESS OVERVIEW HISTORICAL BACKGROUND DIRECTOR’S REPORT CORPORATE GOVERNANCE STATEMENT CONCISE FINANCIAL REPORT INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS SHAREHOLDERS’ INFORMATION COMPANY DIRECTORY 2 4 6 12 16 38 39 51 53 55 11 Silex Annual Report 2017Silex Annual Report 2017CHAIR’S REPORT Dr Lisa McIntyre Chair “Our goal continues to be squarely focussed on positioning ourselves to participate in the forecasted recovery of the global market for nuclear fuel expected from the mid-2020’s.” 2 Dear Fellow Shareholder, During the year ended 30 June 2017 we made significant progress with the execution of our fundamental strategy - to protect and advance our core asset, the SILEX laser based uranium enrichment technology. Our goal continues to be squarely focussed on positioning ourselves to participate in the forecasted recovery of the global market for nuclear fuel expected from the mid-2020’s. This has been the key driver of our efforts to restructure the exclusive Licensee of the SILEX technology, GE-Hitachi Global Laser Enrichment LLC (GLE) and includes the possibility of Silex becoming a majority shareholder in GLE. The restructure of GLE has been pursued in a depressed market for nuclear fuel, which has not only hampered our attempts to secure new investors for GLE, but also continued to have a negative impact on our share price. Our current cash reserves of ~$40 million is equivalent to ~$0.23 per share, which we believe attributes little value to our two world- class technologies, the SILEX technology and Translucent’s cREO™ technology. Despite these difficult conditions, Silex continues to push forward with activities to restructure GLE and to support the commercialisation of the SILEX technology. Meanwhile, IQE Plc continues to advance the product development and commercialisation program for our subsidiary Translucent’s cREO™ technology, with progress to date meeting expectations. I will comment further on this below. STRATEGY The execution of our business strategy has included several parallel streams of activities and has resulted in a very busy time for my fellow directors and the Silex team. We have increased our activities in the US, the target market for deployment of the SILEX technology and continue to evaluate new opportunities to participate in the nuclear fuel cycle. We continue to engage extensively with the many stakeholders in GLE and Silex with respect to the SILEX technology. Here in Australia, we work hard to ensure the retention of our talented team and maintaining our Sydney facility as a centre of innovation whilst focussing on effective cost management to ensure the most efficient use of cash reserves. All of these efforts have been underpinned by our ongoing attention to long-term value creation objectives, risk management and strong governance. CORPORATE GOVERNANCE In recent years, we have restructured and reduced the size of our Board to reflect the changing requirements of the Company. The Board remains committed to ensuring we have a diverse, experienced and competent mix of directors on the Board with complementary skills and industry knowledge to meet the Company’s evolving needs. Robert Lee joined the Board on 1 July 2015, and will stand for re-election by shareholders at our 2017 Annual General Meeting. Robert is an astute Company director who brings a great deal of financial, management and governance acumen to the Silex Board. Silex Annual Report 2017With regard to remuneration, as a result of the GLE restructure taking longer than anticipated, the People & Remuneration Committee made some difficult decisions with respect to the remuneration of the Company’s KMP. No remuneration increases were awarded in FY2017 for our CEO/MD or our Board and our Board continues to not receive fees for Committee participation or for extraordinary time contributed to the Company’s activities. Being mindful of the difficulties faced by the Company, our CEO/MD forfeited his eligibility to receive a Short-Term Incentive (STI) for FY2017. Our CFO/ Company Secretary also forfeited 90% of her STI for FY2017. THE YEAR AHEAD Despite the current challenges that exist in the market for nuclear fuel, we continue to push forward with activities to support our Licensee, GLE with the commercialisation of our unique and potentially disruptive SILEX technology. As announced on 1 September 2017, this may involve Silex taking a majority interest in GLE. We are excited by this prospect and the opportunity to have greater participation in the technology commercialisation program in the US. We continue to believe the SILEX technology is the best path forward to re-build long-term value for our shareholders and we intend to be well positioned to participate in the inevitable recovery of the global nuclear industry that is forecast over the medium term. We also remain pleased with progress made in IQE’s product development program during the 30-month option period, after which time IQE may elect to acquire Translucent’s cREO™ technology. Should IQE proceed with this acquisition, a further payment of US$5 million will be payable. In light of current progress, IQE has determined an optimal route to commercialisation within a 2 to 3-year timeframe, after which time a royalty of up to 6% may be payable on IQE’s products that embody the cREO™ technology. On behalf of the Silex Board and Management, I would like to thank you, my fellow shareholders for your interest and ongoing support of Silex. I look forward to updating you again at our Annual General Meeting in November. Dr Lisa McIntyre Chair 25 September 2017 33 Silex Annual Report 2017Silex Annual Report 2017 Your company Silex Systems (Silex), is today well placed to leverage over two decades of world-leading innovation, resulting in the emergence of technological breakthroughs in two key global industries: i. The nuclear fuel industry – with the unique third generation SILEX laser enrichment technology – targeting commercialisation through a landmark agreement between exclusive Licensee GE-Hitachi Global Laser Enrichment LLC (GLE) and the US Department of Energy (DOE) to produce natural grade uranium from DOE tails inventories for sale into the global uranium market, commencing in the mid 2020’s; and ii. The semiconductor industry – with the unique ‘cREO™’ technology developed by US-based subsidiary Translucent Inc – targeting commercialisation through an exclusive license agreement with UK-based IQE Plc, a world leading producer of advanced semiconductor products for next-generation digital electronics and wireless communications devices. Over recent years Silex has been caught up in difficult market challenges, particularly in relation to the nuclear fuel markets which are the target of our core asset – the SILEX technology. This has resulted in significant delays to the commercialisation program causing erosion in our share price and dwindling shareholder value. It is important to note that this situation is driven by external factors - principally the downturn in the nuclear industry precipitated by the shutdown of the entire Japanese nuclear fleet and premature retirements of reactor units in several other countries. We firmly believe that this situation will correct over the medium term, as the expansion of nuclear capacity gathers momentum around the world and the current market difficulties give way to a new era of innovation in safe, clean and efficient nuclear technology. CEO’S REPORT Dr Michael Goldsworthy CEO/Managing Director “We have been encouraged by recent positive developments in the nuclear industry and the extensive nuclear build programs unfolding in China, Russia, India and other parts of the world.” 4 Silex Annual Report 2017We are therefore pleased to be able to report to our shareholders that our efforts to lead the restructure of GLE as disclosed in recent announcements, have provided us with new opportunities to become more directly involved in the technology commercialisation program and in GLE’s business development path. To this end, Silex and GE- Hitachi Nuclear Energy (GEH) recently signed an extension to the term sheet originally signed in April 2016, after GEH disclosed at that time, its intention to exit GLE due to changes in its business priorities. The term sheet extension includes several amendments which provide Silex and GEH a more efficient and clearer path to finalizing negotiations on a full and binding Purchase and Sale Agreement (PSA) for the acquisition of GEH’s 76% interest in GLE. Whilst Management continues to lead the process to attract new investors to GLE, the Silex Board is also considering the possibility of the Company taking a majority interest in GLE through the restructure process. This would facilitate a more active role in the further development and de-risking of the technology, greater participation in GLE’s business development activities, and potentially a better return for shareholders in the medium to long term. That said, the path to majority ownership will be dependent on obtaining relevant US Government approvals, which are not assured and may take up to 12 months to complete. We look forward to updating shareholders as these options materialise. In November 2016, we announced the signing of an agreement between GLE and the US DOE, under which GLE is entitled to purchase around 300,000 metric tons of depleted tails stockpiled at DOE sites in Paducah, Kentucky and Portsmouth, Ohio. Under this Agreement, GLE plans to construct the world’s first commercial laser enrichment plant with the SILEX technology in Paducah, to re-enrich the tails inventories into natural grade uranium, for sale into the global uranium market. We continue to view the Paducah commercial opportunity as an optimal path to market for GLE and the SILEX technology. The long-term fundamentals for the SILEX technology and GLE will be underpinned by the anticipated recovery of the global markets for natural and enriched uranium. Key contributing factors to the expected recovery of the nuclear fuel markets include the restart of nuclear reactors in Japan – now starting to gather pace, and the continued growth in global nuclear energy capacity. We have been encouraged by recent positive developments in the nuclear industry and the extensive nuclear build programs unfolding in China, Russia, India and other parts of the world. We therefore remain committed to finalising the GLE restructure and supporting the commercialisation of the SILEX technology, believing this is the best path forward to rebuild value for our shareholders. We look forward to sharing our results with you and providing a further update at the Annual General Meeting in November. Dr Michael Goldsworthy CEO/Managing Director 55 Silex Annual Report 2017Silex Annual Report 2017BUSINESS OVERVIEW BUSINESS FACTS PLATFORM Nuclear Fuel for Clean Electricity Generation LOCATIONS Technology Development Silex – Lucas Heights, NSW, Australia GLE – Wilmington, North Carolina, USA Corporate Office Sydney, NSW, Australia 6 THE SILEX LASER URANIUM ENRICHMENT TECHNOLOGY BUSINESS DESCRIPTION Silex invented and initially developed the ‘SILEX’ laser-based uranium enrichment technology in Sydney during the 1990’s. The technology was licensed exclusively in 2006 to GE-Hitachi Global Laser Enrichment LLC (‘GLE’), a business venture currently comprising GE (51%), Hitachi (25%) and Cameco (24%). Silex and GLE jointly continue to commercialise the technology for potential deployment in the USA. The target markets are the global nuclear fuel markets for natural and enriched uranium, worth several billions of dollars annually. BACKGROUND The SILEX technology was invented by Silex Systems scientists Dr Michael Goldsworthy and Dr Horst Struve in the mid 1990’s. In order to facilitate the potential commercial deployment of the technology in the United States, an Agreement for Cooperation between the governments of the United States and Australia was signed in May 2000. In June 2001, the technology was officially Classified by the United States and Australian governments, bringing the project formally under the strict security and regulatory protocols of each country. In 2006, Silex signed a Technology Commercialisation and License agreement with General Electric Company (GE) to develop and commercialise the technology to enrich uranium for use in nuclear power reactors around the world. Since 2008, the project has been managed by GE subsidiary GLE. URANIUM ENRICHMENT Naturally occurring uranium must be enriched before it can be used as fuel in a nuclear power reactor. Enrichment is a technically difficult process and constitutes a major component of nuclear fuel costs accounting for around one third of the cost of nuclear fuel and up to 5% of the total cost of the electricity generated at current prices. Uranium enrichment involves increasing the atomic concentration of the ‘active’ U235 isotope from 0.7% in natural uranium to approximately 5% required for reactor fuel. GLE and Silex are jointly developing the SILEX third generation laser enrichment technology: • Separation of Isotopes by Laser EXcitation (SILEX) • Highly selective excitation of 235UF6 to separate isotopes The two methods of uranium enrichment used to date have been the now obsolete Gas Diffusion (first generation) and Gas Centrifuge (second generation). Silex’s third generation laser-based process provides much higher enrichment process efficiency compared to these earlier methods, potentially offering significantly lower overall costs. Silex Annual Report 2017URANIUM ENRICHMENT TECHNOLOGY GASEOUS DIFFUSION CENTRIFUGE LASER EXCITATION 1st generation technology 2nd generation technology 3rd generation technology ß = 1.004 High cost Obsolete ß ~ 1.25 Lower cost ß ~ 2 - 201 (Classified number) Most cost effective Current technology In commercialisation phase THE NUCLEAR FUEL PRODUCTION The SILEX technology can be utilised in 2 steps of the Nuclear Fuel Cycle to produce: 1. natural grade uranium via re-enrichment of tails inventories; and 2. enriched uranium for use as fuel in nuclear power reactors. THE SILEX TECHNOLOGY The SILEX technology is a unique laser-based process that has the potential to economically separate uranium isotopes as well as several other elements. It has a number of advantages over other uranium enrichment processes including: • Inherently higher efficiency resulting in lower costs; • Smaller environmental footprint than centrifuge and diffusion plants; • Greater flexibility in producing advanced fuels for next generation small modular reactors (SMR’s); and • Anticipated to have the lowest capital costs of all enrichment technologies. Significantly, the SILEX technology is the only third generation laser-based uranium enrichment technology under commercial development in the world today. 1. ß is the process efficiency THE SILEX TECHNOLOGY LICENSE AGREEMENT WITH GLE Silex’s agreement with GLE is an exclusive worldwide commercialisation and licensing agreement for the SILEX technology. The underlying value in the agreement with GLE is a perpetual royalty of up to 12 percent payable to Silex, comprising: • A base royalty of 7 percent of revenues generated from enrichment services using the SILEX technology; and • An additional royalty of up to 5 percent based on the total cost of deployment whereby the lower the cost of deployment per unit production, the higher the royalty. Additionally, under the commercialisation and license agreement there are potentially two further milestone payments payable: • US$5 million – on commencement of construction of the initial commercial plant; and • US$15 million – upon verification by the US Nuclear Regulatory Commission of construction compliance and operational readiness of the initial commercial plant. These milestone payments follow the US$15 million milestone payment that was received by Silex in July 2013, triggered by the successful completion of the Test Loop Phase 1 Program Milestone: Technology Demonstration and Validation. Uranium Production Refinining & Conversion Enrichment Electricity Power Distribution Power Plant SILEX/GLE Other Fuel Fabrication 77 Silex Annual Report 2017Silex Annual Report 2017• the Paducah commercial plant opportunity (to produce natural grade uranium from the reprocessing of tails inventories owned by the US Department of Energy (DOE)) under the Agreement signed between the DOE and GLE. PROJECT ACTIVITIES UPDATE – FULL-SCALE ENGINEERING AND ECONOMIC VALIDATION The focus of the Company is firmly set on the remainder of the commercialisation program for the SILEX technology. Phase Objectives Test Loop technology demonstration and NRC commercial plant license approval Phase I Phase II Status Completed 2013 Economic and engineering validation for the initial commercial production module Commenced in 2013 Phase III Construction of the first full-scale commercial production facility Paducah Opportunity Whilst the pace of this commercialisation program was slowed significantly by GLE in July 2014 in line with continued adverse conditions in the nuclear fuel markets, the technology engineering and economic validation program has continued to achieve significant progress during FY2017. Additional technology demonstration activities relating to improved process efficiency and scaled-up laser system performance were completed during the year in review at the Wilmington and Sydney project sites respectively. Subject to successfully completing the GLE restructure, we will aim for the commercialisation program to be ramped up as soon as funding permits, in anticipation of the commencement of a recovery in nuclear fuel market conditions. BUSINESS OVERVIEW (CONTINUED) GLE RESTRUCTURE The Company’s primary focus in FY2017 was on the continued development and commercialisation of our core asset – the SILEX technology - and the restructure of our Licensee GE-Hitachi Global Laser Enrichment LLC (GLE). GE- Hitachi Nuclear Energy (GEH) announced in April 2016 that they intend to exit GLE, due to changes in business priorities and the continuing difficult conditions being experienced in the nuclear fuel markets. On 29 April 2016, Silex signed a Term Sheet with GEH securing an exclusive option to acquire GEH’s 76% interest in GLE, and the right to assign in part or in whole the acquisition terms to third parties. On 1 September 2017 Silex announced an amendment and extension of the Term Sheet to allow the parties additional time to work towards a mutually acceptable restructure of GLE. The extended Term Sheet includes several amendments which provide Silex and GEH a more efficient and clearer path to finalizing negotiations on a full and binding Purchase and Sale Agreement (PSA) for the acquisition of GEH’s interest in GLE. The amended and extended Term Sheet, which will remain in force until either execution of the PSA or the termination of negotiations, contemplates Silex acquiring a majority interest in GLE. Whilst uncertainties remain in finalizing the transaction documentation, Silex is targeting execution of the PSA before the end of CY2017. Under the amended and extended term sheet signed with GEH, Silex further agreed to continue to reimburse GEH its pro-rata share of funding for the Wilmington operation. This is in addition to Silex funding the development of commercial- scale laser systems at its Lucas Heights facility in Sydney. GLE shareholder Cameco (24% owner of GLE) remains supportive of Silex’s efforts to restructure GLE. Meanwhile Silex continues to take the lead on the search for new investors in GLE in order to keep its restructure options open, with the possibility of assigning part of its rights under the Term Sheet to high calibre strategic investors who are capable of supporting GLE’s transition to market with the SILEX technology. Discussions continue to advance with a number of interested parties. Silex firmly believes that GLE is the best vehicle to take the SILEX technology to market, based on the preservation of several key assets and opportunities which will underpin GLE’s value going forward. These assets and opportunities include: the highly skilled and specialised engineering team based in Wilmington (in addition to the highly talented laser development team in Sydney); the Test Loop demonstration facility that has operated since 2010 and continues to advance the technology towards full-scale demonstration; the combined construction and operating license (COL) granted by the US Nuclear Regulatory Commission in 2012 for a potential commercial enrichment plant in Wilmington, NC; • • • 8 Silex Annual Report 2017THE PADUCAH OPPORTUNITY NUCLEAR POWER OUTLOOK The Paducah commercial plant opportunity continues to be viewed as an ideal path to market for the SILEX technology. The opportunity would allow for the initial commercial deployment of the technology on a smaller scale and at a lower cost, representing a lower risk path to market for investors and other stakeholders. The opportunity would involve construction of GLE’s proposed ‘Paducah Laser Enrichment Facility’ (PLEF) utilising the SILEX technology to re-enrich around three hundred thousand metric tons of depleted tails inventories owned by the DOE. An agreement between GLE and the DOE providing for the sale of the tails inventories to GLE was signed in November 2016. The tails re-enrichment at the PLEF would occur over a period of 40 years or more, resulting in the production of natural grade uranium which could then be sold into the expanding global uranium market. At a nominal production rate of around 2000 metric tons of natural uranium hexafluoride (UF6) per year (subject to applicable regulations), this would rank as a large ‘Tier 1’ uranium mine by today’s standards. Subject to a recovery in uranium market pricing and receipt of required regulatory approvals and securing project financing, the Paducah commercial plant opportunity represents an ideal path to full commercial deployment of our potentially disruptive laser enrichment technology. WILMINGTON ENRICHMENT PLANT OPPORTUNITY In 2012, GLE obtained a combined construction and operating license (COL) from the US Nuclear Regulatory Commission (NRC) for an enrichment plant of up to 6 million separative work units (SWU – the unit for enrichment) planned for Wilmington, North Carolina. The Wilmington plant COL approval is the first license granted in the world for a commercial laser enrichment facility. Domestic enrichment capacity in the US is currently approximately one third of the total US enrichment requirements. In this light, there remains considerable interest from US utilities in the possibility of a new US-based enrichment supplier as the enrichment market recovers. GLE and Silex will continue to monitor enrichment market conditions as the Wilmington enrichment plant opportunity evolves. Challenging market conditions continued to impact the nuclear fuel markets throughout FY2017. This was not unexpected given the continued slow pace of the restart of the Japanese nuclear reactor fleet following the Fukushima disaster in 2011 and the announcement of the premature retirement of a number of reactors in the US and Europe. As a result, demand for enrichment and uranium remains low and prices continue to be depressed. Longer term, a more positive outlook remains for the nuclear industry, driven by the merits of nuclear power as a clean and efficient emissions-free source of base load electricity becoming better understood around the world. Seven new reactor units commenced operations in the past year giving a total of 447 operable reactors globally. With an additional 58 reactors under construction and 162 planned – the demand and supply fundamentals of the nuclear fuel markets are set to recover in the coming years. Billions of dollars of investment continues to be made every year in the nuclear industry with new nuclear plant builds continuing in the US and the UK, as well as more extensive programs in China, Russia, India and South Korea. This is in addition to extensions being granted to the operating lives of existing nuclear plants which could see many of these plants generating clean, reliable and affordable baseload electricity for up to 80 years. NUCLEAR FUEL MARKET OUTLOOK The predicted growth in nuclear reactor build as highlighted above underpins the forecast market conditions that could support increasing demand for nuclear fuel from the mid 2020’s. Both uranium and enrichment (U and SWU) price recovery and uncovered demand are expected to improve, according to industry analysts Ux Consulting and others. In addition, given the current environment which has precipitated the curtailment of future projects and expansion opportunities and shuttering of existing capacity by both U and SWU producers, ‘accessible’ supply could decrease as demand increases. This provides potential for GLE and the SILEX technology to participate in the global market for uranium and enrichment from the mid 2020’s. We therefore remain encouraged by these developments in the global nuclear industry. We continue to believe the SILEX technology commercialisation program being conducted jointly by GLE and Silex, remains the best path forward to deliver value to our shareholders. 99 Silex Annual Report 2017Silex Annual Report 2017BUSINESS OVERVIEW (CONTINUED) ACTIVITIES DURING THE YEAR IN REVIEW Following the successful transfer of Translucent’s unique epitaxy equipment and associated cREO™ technology to IQE’s North Carolina production facility in 2016, effort and focus has been applied to product development for several applications of the unique cREO™ technology. IQE have continued to make good progress and are meeting target development milestones for initial products utilising the cREO™ materials. The product development program involves using two of Translucent’s production reactors to produce various cREO™ templates on silicon wafers for trialling within the IQE Group and select commercial partners, with initial focus on wireless communications devices and power electronics devices. In light of this progress, IQE has determined an optimal route to commercialisation within a 2 to 3-year timeframe. BUSINESS FACTS PLATFORM Semiconductor materials LOCATIONS Technology Development by Licensee IQE – Greensboro, North Carolina, USA Corporate Office Sydney, NSW, Australia THE TRANSLUCENT cREO™ SEMICONDUCTOR TECHNOLOGY BUSINESS DESCRIPTION Over the past decade, Silex subsidiary Translucent Inc developed a novel set of semiconductor materials known as ‘crystalline Rare Earth Oxides’ (cREO™) for application to the manufacturing of next generation devices in the semiconductor, digital communications and power electronics industries. Following the extensive pursuit of business development options for Translucent, an exclusive License and Assignment Agreement was signed with UK-based IQE Plc (LON:IQE) in September 2015. IQE is the global leader in the design and manufacture of advanced semiconductor wafer products. THE TRANSLUCENT – IQE AGREEMENT Following the signing of the exclusive License and Assignment Agreement with UK-based IQE in September 2015, an initial license fee of US$1.4 million was paid by IQE in March 2016 following the transfer of the cREO™ technology to IQE’s Greensboro, North Carolina manufacturing facility. In accordance with the agreement, the product development and commercialisation activities are to be conducted by IQE during a 30-month option and license period. Should IQE elect to exercise the right to purchase the technology within this period, the payment of a further US$5 million will be made. More importantly, the potential commercial applications that IQE have identified for the technology may result in an attractive perpetual royalty of up to 6% of revenues generated by IQE from use of the cREO™ technology. 10 Silex Annual Report 20171111 Silex Annual Report 2017Silex Annual Report 2017HISTORICAL BACKGROUND 1988 Silex is established by founder Dr Michael Goldsworthy as a technology research and development subsidiary of Sonic Healthcare Limited, an Australian publicly listed company. 1990 Silex begins researching the isotope separation concepts of co-inventors Dr Michael Goldsworthy and Dr Horst Struve. 1995 ‘Proof of Principle’ demonstration of the SILEX Process is achieved at the Company’s laboratories in Lucas Heights, Sydney. Uranium enrichment, the largest market for isotope separation, becomes Silex’s primary focus. 1996 Silex is divested from Sonic Healthcare Limited and sets about establishing the commercial viability of the SILEX technology. 1998 2001 Silex lists on the Australian Stock Exchange (ASX) under the symbol ‘SLX’. The SILEX technology is officially Classified by the US and Australian Governments. The implications of classification relate mainly to security protocols. 2000 An Agreement for Cooperation between the US and Australian Governments is signed, paving the way for continued development of the SILEX technology for uranium enrichment, and facilitating its future transfer to the US. The first macroscopic demonstration of the SILEX uranium process is successfully achieved. Silex wins the 2000 Australian Technology Award for Excellence in the Manufacturing and Engineering sector. Silex raises $36 million through a share issue to assist in funding the development of its technology portfolio. 2002 The SILEX Uranium Enrichment Project achieves a key milestone with the first full demonstration on practical uranium enrichment using the SILEX ‘Direct Measurement Facility’ at Lucas Heights, Sydney. 2006 Silex and the General Electric Company sign an exclusive Technology Commercialisation and License Agreement for the SILEX laser uranium enrichment technology in May, with US Government authorisations received in October. 12 Silex Annual Report 2017Our mission is to deliver the unique and disruptive SILEX laser uranium enrichment technology as the next generation technology for the global uranium enrichment industry. 2007 2011 Transfer of the SILEX Uranium Enrichment Project to GE’s Wilmington, North Carolina (USA) nuclear fuel plant is completed. Hitachi joins GE as project partner. Silex successfully completes an $89 million capital raising and a share purchase plan which raises a further $20 million. Silex successfully completes a $50 million capital raising in October. 2012 2008 GE-Hitachi Global Laser Enrichment LLC (GLE), formed as a subsidiary of GE-Hitachi Nuclear Energy (GEH) to commercialise the SILEX technology, announces it has selected its Wilmington, North Carolina, headquarters site for the first potential commercial SILEX uranium enrichment facility. GLE is notified that the US Nuclear Regulatory Commission (NRC) has approved a license to operate the Test Loop for the demonstration of the next generation SILEX laser uranium enrichment technology. GEH and Cameco Corporation announce that Cameco, the world’s largest uranium producer, has joined the GLE venture. Cameco paid US$123.8 million for a 24% stake in GLE. GE retains 51% ownership with Hitachi at 25%. 2009 In August, the US Nuclear Regulatory Commission (NRC) announces it has accepted GLE’s license application to construct and operate a commercial SILEX uranium enrichment facility in Wilmington, triggering a ~36 month review process. In July, GLE announces the on-schedule start-up of the Test Loop to evaluate the next-generation SILEX laser uranium enrichment technology. 2010 In April, GLE and Silex announce the successful completion of the Test Loop initial measurement program. In September, the US NRC approves the world’s first Construction and Operating License for a commercial laser enrichment plant utilising the SILEX technology at Wilmington, North Carolina. 2013 In May, GLE and Silex achieve the successful completion of the Test Loop Program Phase I Milestone: Technology Demonstration and Validation in Wilmington, North Carolina – triggering a US$15 million milestone payment from GLE to Silex (which was received in July 2013). Silex lists on the OTCQX exchange in the US under the symbol ‘SILXY’ in June. 2014 The US Department of Energy (DOE) selects GLE for future operations at its Paducah, Kentucky Site. The DOE and GLE commence negotiations for a 40+ year contract to have the SILEX technology commercially deployed for the re- enrichment of depleted uranium tails. In June, Silex announces completion of a strategic review of the entire business, determining to refocus efforts on its primary economic asset, the SILEX laser uranium enrichment technology. The strategic review also involves an accelerated transition to market for subsidiaries Solar Systems and Translucent. In July, GLE announces its own restructure in response to worsening trading conditions in the global nuclear fuel markets, initially triggered by the events in Fukushima, Japan in March 2011. The changes result in the consolidation of GLE’s operations. Importantly, the key commercial terms of Silex’s licence agreement with GLE do not change. 1313 Silex Annual Report 2017Silex Annual Report 2017HISTORICAL BACKGROUND (CONTINUED) 2015 2017 In September, Silex announced that GEH and Silex agreed to amend and extend the Term Sheet for the acquisition of GEH’s 76% interest in GLE, providing Silex and GEH a more efficient and clearer path to finalizing negotiations on a full and binding Purchase and Sale Agreement (PSA) for the acquisition of GEH’s 76% interest in GLE. The SILEX technology maturation program continues to advance at both the GLE, Wilmington and Silex, Lucas Heights project sites, with several engineering scale-up and economic validation deliverables achieved during the year. IQE continued to meet target development milestones for initial products utilising subsidiary Translucent’s cREO™ materials. Two of Translucent’s production reactors are being used to produce various cREO™ templates on silicon wafers for trialling within the IQE Group and by select commercial partners. Work continues at reduced pace on the commercialisation of the SILEX laser uranium enrichment technology at GLE’s test loop facility in Wilmington, North Carolina (with GLE funding) and at Silex’s Lucas Heights laser facility in Sydney (under Silex funding). In September, Silex subsidiary Translucent Inc’s unique semiconductor technology known as ‘cREO™’ was exclusively licensed to IQE Plc based in the UK. Under the terms of the License and Assignment Agreement, IQE has 30 months in which to elect to acquire Translucent’s technology. Translucent ceased its Californian operation in December 2015 following the successful transfer of the technology and commercialisation program to IQE. 2016 GEH announced in April that it is looking to exit GLE, due to changes in business priorities and the continuing difficult market conditions. Silex subsequently executed a Term Sheet with GEH securing an exclusive option to acquire GEH’s 76% interest in GLE, and the right to assign in part or in whole the acquisition terms to third parties. In November, GLE and the US Department of Energy (DOE) signed an agreement for the sale and purchase of depleted uranium hexafluoride (DUF6) for potential re-enrichment in the first SILEX laser enrichment facility in Paducah, Kentucky. The opportunity would result in the SILEX technology processing around 300,000 metric tons of depleted uranium (tails) stockpiles owned by the DOE for over 40 years. 14 Silex Annual Report 2017CONCISE FINANCIAL REPORT for the year ended 30 June 2017 SILEX SYSTEMS LIMITED & ITS SUBSIDIARIES ABN 69 003 372 067 DIRECTORS’ REPORT Your directors present their report on the consolidated entity consisting of Silex Systems Limited (Silex or the Company) and the entities it controlled at the end of, or during the year ended 30 June 2017. 1. Directors The following persons were directors of Silex Systems Limited during the whole of the financial year and up to the date of this report: Dr L M McIntyre – Chair Dr M P Goldsworthy Mr R A R Lee Mr C D Wilks 2. Principal activities During the year, the principal activity of the Company was the continued development and commercialisation of our core asset, the laser isotope separation process for uranium enrichment known as the SILEX technology in conjunction with exclusive licensee, GE-Hitachi Global Laser Enrichment LLC (GLE). 3. Dividend No dividend payments were made during the year. No dividend has been recommended or declared by the Board. 16 Silex Annual Report 2017DIRECTORS’ REPORT 4. Review of operations and activities Information on the operations and financial position of the consolidated entity and its business strategies and prospects is set out below and in section 8 ‘Likely developments and expected results of operations’. Trading Results A summary of consolidated revenue and results is set out below: Revenue from continuing operations (Loss) before income tax expense Income tax expense Net (loss) from continuing operations Net profit from discontinued operations Net (loss) for the year Net (loss) is attributable to: Owners of Silex Systems Limited 2017 $ 2016 $ 1,365,646 1,617,655 (10,211,489) (4,700,759) – (10,211,489) 92,558 (10,118,931) – (4,700,759) 1,303,871 (3,396,888) (10,118,931) (3,396,888) Key information about the consolidated operations, results and financial position Comments on the operations and the results of those operations are set out below: The SILEX Technology Commercialisation Program Market for Nuclear Reactor Fuel The global demand for nuclear fuel, and specifically uranium and enrichment services remains depressed with prices struggling to move above decade lows. The continued slow pace of the restart of the Japanese nuclear reactor fleet, and nuclear policy uncertainty in countries such as the US, Germany, France and South Korea has contributed to weaker growth and a delay to the expected return to a more balanced demand and supply scenario in the markets for nuclear fuel. Looking to the medium term and beyond, we continue to believe that the outlook for the nuclear industry is positive and that market growth will return. Our view is supported by the World Nuclear Association’s account of 58 reactors being currently under construction. Additionally, with the start-up of 7 new reactor units in the past year, there are 447 operable reactors globally at present. With a further 162 reactors planned with approvals, funding or commitments in place – we expect to witness the rebalancing of demand and supply fundamentals in nuclear fuel markets over the coming years. 1717 Silex Annual Report 2017Silex Annual Report 2017DIRECTORS’ REPORT The GLE Restructure The search for new investors to restructure the exclusive licensee of the SILEX laser uranium enrichment technology, GE-Hitachi Global Laser Enrichment LLC (GLE), continued during the year despite a backdrop of challenging market conditions that have defined the nuclear industry since the Fukushima accident in 2011. Silex has led the search for new investors in GLE who are capable of backing GLE’s transition to market and supporting the commercialisation of the SILEX technology. Engagement with the various stakeholders in the restructure of GLE has also been a key focus for Silex and is ongoing. At the time of writing, a number of parties continue to assess the GLE restructure opportunity and progress with their due diligence. Silex also continues to consider the potential to take a majority equity interest in GLE such that we can have greater visibility and participation in the technology commercialisation program going forward. Silex continues to believe that GLE is the best vehicle to take the SILEX technology to market, based on the preservation of several key assets which will underpin the value of GLE and the SILEX technology. The Technology Maturation Plan Further technology maturation including several engineering scale-up and economic validation deliverables were achieved during FY2017 at both the GLE, Wilmington, North Carolina and Silex, Sydney project sites. Activities in the Test Loop facility in Wilmington included the commissioning of key process equipment which resulted in the successful demonstration of efficiency improvements and the potential to lower operating and capital costs. Laser system development activities in Sydney included test and reliability of the prototype commercial-scale plant laser system and the ongoing development of plant control systems required for the integrated prototype commercial technology demonstration to be conducted in Wilmington in the 2020 timeframe. The Paducah Project Opportunity Pursuant to the signing of the agreement between GLE and the US DOE in November 2016, the Paducah commercial opportunity is viewed by the Company as an ideal path to market for GLE and the SILEX technology. The opportunity would see the construction of the first laser enrichment facility and the commercial deployment of the SILEX technology to re-enrich ~300,000 metric tons of depleted uranium (tails) stockpiles owned by the DOE. The tails re-enrichment would occur over a period of 40+ years, resulting in the production of natural grade uranium which could then be sold into the global uranium market which is expected to expand in the future. At a nominal production rate of around 2,000 metric tons of natural uranium hexafluoride (UF6) per year (subject to applicable regulations), this project would rank as a large ‘Tier 1’ uranium mine by today’s standards. Discontinued Operations – Translucent and Solar Systems In June 2014, Silex announced a major restructure which aimed to return the Company’s focus solely on the SILEX laser enrichment technology. The restructure was completed in FY2016 and resulted in the exclusive licensing of Translucent’s unique semiconductor technology known as crystalline Rare Earth Oxide (cREO™) to IQE Plc based in the UK (LON: IQE). IQE is progressing the cREO™ technology towards commercial deployment in various advanced semiconductor markets. Under the terms of the License and Assignment Agreement signed in September 2015, IQE has until March 2018 in which to elect to acquire Translucent’s technology at which time an additional amount of US$5m will be payable. Translucent ceased its Californian operations in December 2015 following the successful transfer of the technology to IQE. During FY2017, IQE continued to make good progress in meeting target development milestones for initial products using the cREO™ materials. The product development program involves using two of Translucent’s production reactors to produce various cREO™ templates on silicon wafers for trialling within the IQE group and select commercial partners, with initial focus on wireless communications devices and power electronics devices. In light of this progress, IQE has determined an optimal route to commercialisation within a 2 to 3-year timeframe. Silex subsidiary Solar Systems Pty Ltd also ceased operations during FY2016. Various property, plant and equipment and technology assets were sold to third parties. 18 Silex Annual Report 2017DIRECTORS’ REPORT Financial review A summary of our consolidated income statement is set out below: Revenue from continuing operations Other income Research and development materials Development expenditure Employee benefits expense Consultants and professional fees Rent, utilities and property outgoings Other expenses Income tax expense Net (loss) from continuing operations Net profit from discontinued operations Net (loss) for the year 2017 $ 1,365,646 940,847 (207,498) (6,668,102) (3,676,747) (914,782) (411,461) (639,392) 2016 $ 1,617,655 1,467,828 (60,107) (2,550,261) (3,091,636) (951,041) (433,766) (699,431) – – (10,211,489) 92,558 (10,118,931) (4,700,759) 1,303,871 (3,396,888) The net loss from ordinary activities of $10.1m increased by $6.7m compared to the prior year. The net loss is comprised of the loss from continuing operations of $10.2m (an increase of $5.5m compared to the prior year) and the profit from discontinued operations of $0.1m (compared to $1.3m for the prior year). Further commentary on the results from our operations and the factors contributing to the increased net loss from ordinary activities (after tax) attributable to members is provided below. Continuing Operations – Silex Systems The Silex Systems segment result was a $10.2m loss in the current year compared to a $4.7m loss in the prior year. Revenue (Interest income) reduced by $0.3m as average cash balances and interest rates declined. Other income reduced by $0.5m which was due to a $0.5m reduction in Research and Development tax incentive income. There was an increase in expenses from continuing operations of $4.7m compared to the prior year. This was mainly due to $6.7m of Development expenditure in the current year relating to Silex’s reimbursement of GEH’s pro-rata share of funding for GLE’s Wilmington operations ($2.6m in the prior year). In addition, Employee benefits expense increased by $0.6m largely as a result of an increased support for continuing operations and the GLE restructure. Discontinued Operations – Translucent and Solar Systems The Silex Board announced the cessation of the Solar Systems business operation on 30 July 2015. Various property, plant and equipment and technology assets were sold to third parties with total proceeds of $2.8m received, of which $0.5m was received during the year ended 30 June 2017. All (held for sale) assets of the Solar Systems business have now been sold. As a result of the exclusive License and Assignment Agreement with IQE Plc for Translucent’s proprietary cREO™ technology, the product development and commercialisation program was transferred to IQE. The Translucent, Palo Alto, California operation ceased upon the successful transfer of the cREO™ technology in late 2015. The profit from discontinued operations was $0.1m in the current year compared to a profit of $1.3m in the prior year. The current year result was mainly due a $0.1m profit on sale of residual Solar Systems’ assets ($1.3m in the prior period). 1919 Silex Annual Report 2017Silex Annual Report 2017 DIRECTORS’ REPORT Balance sheet A summary of our balance sheet is set out below: Assets Total current assets Total non-current assets Total assets Liabilities Total current liabilities Total non-current liabilities Total liabilities Net assets Equity Total equity 30 June 2017 $ 30 June 2016 $ 44,520,749 7,367,498 51,888,247 55,098,350 1,706,048 56,804,398 2,479,087 116,892 2,595,979 2,950,265 104,728 3,054,993 49,292,268 53,749,405 49,292,268 53,749,405 As at 30 June 2017, total assets were $51.9m. Significant assets are cash holdings of $42.7m (cash and term deposits), and Available-for-sale financial assets of $7.3m. Total liabilities were $2.6m and included trade and other payables of $1.8m. 5. Earnings per share Earnings per share for (loss) from continuing operations attributable to the ordinary equity holders of the Company Basic earnings per share Diluted earnings per share Earnings per share for (loss) attributable to the ordinary equity holders of the Company Basic earnings per share Diluted earnings per share 2017 Cents 2016 Cents (6.0) (6.0) (5.9) (5.9) (2.8) (2.8) (2.0) (2.0) 20 Silex Annual Report 2017DIRECTORS’ REPORT 6. Significant changes in state of affairs The financial position and performance of the Company continued to be affected by the Company’s participation in the restructure of the exclusive licensee for the SILEX technology, GLE. This effort is consistent with the objectives of the Company’s 2014 major strategic review which aimed to return the Company’s focus to the development and commercialisation of its foundation technology and core asset – the SILEX technology. Silex continued its efforts to attract new investors to support a restructure of GLE, after GE-Hitachi (GEH) disclosed in 2016 their intention to divest their 76% stake in GLE. Silex holds an exclusive, assignable option over GEH’s 76% equity stake in GLE in accordance with the provisions of a Term Sheet signed by Silex and GEH in April 2016 and as last amended and extended on 31 August 2017 (refer ASX Announcement dated 1 September 2017). The amended Term Sheet, which will remain in force until either execution of the PSA or the termination of negotiations, contemplates Silex acquiring a majority interest in GLE. Pursuant to the amended Term Sheet, Silex will continue to contribute 76% of the funding of GLE’s Wilmington, North Carolina operations in addition to funding Silex’s laser development activities at its Lucas Heights facility south of Sydney. The amended Term Sheet provides a revised framework for the GLE restructure, including a more efficient and clearer path to finalizing negotiations on a full and binding Purchase and Sale Agreement for the acquisition of GEH’s 76% interest in GLE. There were no other significant changes in the state of affairs of the Company during the financial year not otherwise dealt with in this report. 7. Matters subsequent to the end of the financial year Between 30 June 2017 and 22 September 2017, the IQE Plc share price (LON:IQE) has increased considerably. Combined with movements in exchange rates, the value of the shares (disclosed as Available-for-sale financial assets) has increased by approximately $4,500,000 since 30 June 2017. Gains or losses arising from changes in the fair value of shares classified as available-for-sale are recognised in other comprehensive income. The financial effects of the movements in fair value since 30 June 2017 will be recognised in the financial statements for the year ended 30 June 2018. As announced to the ASX on 1 September 2017, Silex and GE-Hitachi Nuclear Energy (GEH) reached agreement to further amend and extend the Term Sheet for the exclusive assignable option over GEH’s 76% interest in GLE. The amended Term Sheet, which will remain in force until either execution of a binding Purchase and Sales Agreement (PSA) or the termination of negotiations, contemplates Silex taking a majority interest in GLE. Pursuant to the amended Term Sheet Silex will continue to contribute 76% of the funding of GLE’s Wilmington, North Carolina operations in addition to funding Silex’s laser development activities at its Lucas Heights facility south of Sydney. The total funding support for the 6 months ending 31 December 2017 is expected to be approximately $6.5 million. The consolidated entity is not aware of any other matters or circumstances which are not otherwise dealt with in the financial statements that have significantly, or may significantly, affect the operations of the consolidated entity, the results of its operations or the state of the consolidated entity in subsequent years other than those referred to above. 2121 Silex Annual Report 2017Silex Annual Report 2017DIRECTORS’ REPORT 8. Likely developments and expected results of operations Overview Silex is a research and development company whose primary asset is the SILEX laser uranium enrichment technology which is licensed exclusively to GE-Hitachi Global Laser Enrichment LLC (GLE). As outlined above, GE-Hitachi Nuclear Energy (GEH) is intending to exit GLE, due to changes in business priorities and the continuing adverse market conditions driven by the Fukushima disaster in 2011. Silex continues in its efforts to restructure GLE and on 1 September 2017 announced the agreement to amend and extend the PSA Term Sheet that was originally signed with GEH in April 2016. At the time of writing, a number of parties continue to assess the GLE restructure opportunity and progress with their due diligence activities. In parallel Silex continues to consider the possibility of taking a majority equity interest in GLE, which would provide the Company greater visibility and participation in the technology commercialisation program going forward. In light of the above, future potential milestone receipts and royalties under the Amended and Restated Technology Commercialisation and License Agreement (ARTCLA) signed with GLE in 2013 may be significantly delayed or changed by several factors, including the slowdown in the pace of GLE’s commercialisation program announced in July 2014, the outcome of the restructure of GLE, and the timing of the recovery in the markets for uranium and enrichment services. At this time, it is too early to speculate how the final outcome of the GLE restructure will affect the Company’s position under the ARTCLA, particularly if Silex proceeds with the acquisition of a majority interest in GLE. That said, the Company is striving to maximise the potential returns from commercialisation of the SILEX technology under a variety of possible future scenarios. The implementation of the Company’s major strategic review announced on 30 June 2014 involved decisions to cease the Solar Systems operations in Victoria and the Translucent operations in California. An exclusive License and Assignment Agreement for Translucent’s technology was signed in September 2015 with UK-based IQE Plc (IQE) as noted above. The outcome of IQE’s commercialisation program remains uncertain. The Company’s future prospects and results remain largely dependent on the outcomes of the commercialisation programs for the SILEX and cREO™ technologies, the GLE restructure and funding for the remaining commercialisation program, and a recovery in the markets for both uranium and enrichment services. Business strategies and future prospects The SILEX Technology In recent years, the Company has refocussed its resources and attention to our core asset, the SILEX laser based uranium enrichment technology. We remain 100% committed to the SILEX technology and its successful commercialisation in collaboration with exclusive licensee GLE. We intend to continue to protect our core asset and position ourselves to participate in the forecasted recovery of the global market for nuclear fuel in the mid-2020’s. Central to the execution of our strategy are the following: • efforts to increase Silex’s involvement with GLE – potentially as a significant shareholder; • increased presence in the US, the target market for deployment of the SILEX technology; • ongoing evaluation of new opportunities to participate in the nuclear fuel cycle; • retention of our talent and maintaining our Sydney facility as a centre of innovation; and • focus on effective cost management to ensure the most efficient use of cash reserves. The SILEX technology represents a unique third-generation laser-based solution for production of two key components of nuclear power reactor fuel: • natural grade uranium via re-enrichment of tails inventories (i.e. the Paducah commercial plant project); and • enriched uranium for use as fuel in today’s conventional nuclear power reactors – in the form of low enriched uranium (LEU), as well as customised fuel for the next generation fleet of small modular reactors (SMR’s) - in the form of high assay LEU. 22 Silex Annual Report 2017DIRECTORS’ REPORT The SILEX technology maturation program continues to advance at both the GLE, Wilmington and Silex, Sydney project sites, with several engineering scale-up and economic validation deliverables achieved during the year. Activities at the Test Loop facility in Wilmington included the commissioning and demonstration of key process equipment components which resulted in the confirmation of significant efficiency improvements and the potential to lower operating and capital costs. Laser system development activities in Sydney included the commissioning and demonstration of a prototype production-scale laser system and the development of associated control systems, all of which will be combined for a major integrated demonstration of the prototype commercial technology to be conducted in Wilmington. GLE and Silex continue to conduct a stage-gated approach to commercialisation of the SILEX laser enrichment technology, albeit at reduced pace, with the following three phases: Phase Phase I Phase II Objectives Status Test Loop technology demonstration and NRC commercial plant license approval Completed 2013 Economic and engineering validation for the initial commercial production module Commenced in 2013 Phase III Construction of the first full-scale commercial production facility Paducah Opportunity Status of Nuclear Fuel Markets The global demand for nuclear fuel, and specifically uranium and enrichment services remains depressed. The continued slow pace of the restart of the Japanese nuclear reactor fleet, and nuclear policy uncertainty in countries such as the US, Germany, France and South Korea has contributed to weaker growth and a delay to the expected return to a more balanced demand and supply scenario in the markets for nuclear fuel. Looking to the medium term and beyond, we continue to believe that the outlook for the nuclear industry is positive and that market growth will return. Our view is supported by the World Nuclear Association’s account of 58 reactors being currently under construction. Additionally, with the start-up of 7 new reactor units in the past year, there are 447 operable reactors globally at present. With a further 162 reactors planned with approvals, funding or commitments in place – we expect to witness the rebalancing of demand and supply fundamentals in nuclear fuel markets over the coming years. We continue to believe our core asset, the SILEX technology and the only third generation laser enrichment technology being commercialised in the world, is the best path forward to deliver value to our shareholders. However, the risks surrounding nuclear industry growth prospects and the related nuclear fuel market conditions, and the outcome of the GLE restructure, could impact the commercialisation program outlined above. 2323 Silex Annual Report 2017Silex Annual Report 2017DIRECTORS’ REPORT 9. Information on Directors a) Directors’ profiles The following information is current as at the date of this report: Dr Lisa McIntyre BSc (Hons), PhD, GAICD. Chair – Independent non-executive director Experience and expertise Independent non-executive director for five years and Chair for three years. Extensive experience as a Company Director. Other current directorship roles include icare NSW, HCF, Studiosity Pty Ltd and the University of Sydney. Executive career in strategy, commercialisation and performance support as a senior partner of global strategy firm L.E.K. Consulting for 20 years. Other current listed company directorships None Former listed company directorships in last 3 years Non-executive director of Cover-More Group Limited from November 2013 to April 2017 Special responsibilities Chair of the Board Member of Audit Committee Chair of People & Remuneration Committee Interests in shares and options Ordinary shares – Silex Systems Limited Options over ordinary shares – Silex Systems Limited 48,230 Nil Dr Michael Goldsworthy BSc (Hons), MSc, PhD, FAIP, GAICD. Chief Executive Officer/Managing Director Experience and expertise CEO/MD for twenty-five years. Founder of the Company and co- inventor of the SILEX uranium enrichment technology. Other current listed company directorships Former listed company directorships in last 3 years None None Special responsibilities Interests in shares and options Chief Executive Officer / Managing Director Ordinary shares – Silex Systems Limited Options over ordinary shares – Silex Systems Limited 5,979,055 Nil Mr Christopher Wilks BComm, FAICD. Non-executive director Experience and expertise Other current listed company directorships Non-executive director for twenty-nine years. Finance director and CFO of Sonic Healthcare Limited. Various other directorships of public companies held over the last thirty years. Executive director of Sonic Healthcare Limited since 1989 (Finance director since 1993) Former listed company directorships in last 3 years None Special responsibilities Member of Audit Committee Member of People & Remuneration Committee Interests in shares and options Ordinary shares – Silex Systems Limited Options over ordinary shares – Silex Systems Limited 2,814,021 Nil 24 Silex Annual Report 2017 DIRECTORS’ REPORT Mr Robert Lee BSc, MBA, GAICD. Independent non-executive director Experience and expertise Independent non-executive director for two years. Experienced company director, corporate adviser and former Executive Director of Macquarie Group Limited. Currently a non-executive director of Westmead IVF and Maple-Brown Abbott Limited. Other current listed company directorships Former listed company directorships in last 3 years None None Special responsibilities Chair of Audit Committee Member of People & Remuneration Committee Interests in shares and options Ordinary shares – Silex Systems Limited Options over ordinary shares – Silex Systems Limited Nil Nil 10. Meetings The number of directors’ meetings held during the financial year and the number of meetings attended by each director are set out in the following table: Director’s name Dr L M McIntyre Dr M P Goldsworthy Mr R A R Lee Mr C D Wilks Directors’ Meetings Audit Committee Meetings People & Committee Meetings Number Held Number Attended Number Held Number Attended Number Held Number Attended 12 12 12 12 12 12 12 12 3 * 3 3 3 * 3 3 2 * 2 2 2 * 2 2 * Not a member of the relevant committee at the time the scheduled meetings were held 2525 Silex Annual Report 2017Silex Annual Report 2017DIRECTORS’ REPORT 11. Remuneration Report Dear Fellow Shareholders, On behalf of the Board and as Chair of the Company’s People and Remuneration Committee, I am pleased to present to you the FY2017 Silex Systems Limited Remuneration Report, for which we seek your support at our Annual General Meeting in November. The details of the remuneration received by the Company’s Key Management Personnel (KMP) are prepared in accordance with accounting standards, legislative requirements and best practice corporate governance guidance. The following comments aim to provide greater insight into the Committee’s remuneration decisions with respect to FY2017 and our remuneration policies and practices generally. The Company’s primary focus during FY2017 was leading the activities relating to the restructure of GLE, the exclusive licensee of the unique and potentially disruptive SILEX laser based uranium enrichment technology. The restructure has been hindered by challenging business conditions in the markets for nuclear fuel that are attributable to the ongoing depressed state of the nuclear industry in a post-Fukushima operating environment. These conditions continue with the recovery of the markets for uranium and enrichment services expected to take longer than originally anticipated due to the continued slow pace of reactor restarts in Japan and nuclear policy uncertainty in countries such as the US, Germany, France and South Korea. Despite these difficult conditions, Silex continues to push forward with activities to restructure GLE and continue the commercialisation of the SILEX technology. With respect to our other technology license, we have been pleased this year with the product development progress made by the exclusive licensee of the Translucent cREO™ semiconductor technology, IQE Plc. IQE continue to pursue several potential paths for the commercial deployment of the cREO™ technology with its utilisation planned in a number of IQE’s growing product segments. As a result of the GLE restructure taking longer than anticipated, the Committee made some difficult decisions with respect to the remuneration of the Company’s KMP. No remuneration increases were awarded in FY2017 for our CEO/MD or our Board and our Board continues to not receive fees for Committee participation or for extraordinary time contributed to the Company’s activities. Being mindful of the difficulties faced by the Company, our CEO/MD forfeited his eligibility to receive a Short-Term Incentive (STI) for FY2017. Our CFO/Company Secretary also forfeited 90% of her STI for FY2017. We also remain aware of shareholder concern that any long-term equity based remuneration is linked to growth in shareholder value. Therefore, at this time, it has been determined that eligibility of our executives to participate in long-term incentives will continue to be deferred. Following a full review of the remuneration package of our CFO/Company Secretary, an increase of 12.65% to Total Fixed Remuneration and a 25% increase to the maximum available STI was awarded from 1 July 2016. An additional $25,000 was included on a one-off basis to the FY2017 STI with $12,500 awarded in February 2017, reflecting our CFO’s significant contribution to facilitating the due diligence activities conducted by potential investors in GLE. The balance of the maximum available STI for FY2017 of $112,500 was forfeited. As we move forward in FY2018, the Company continues to focus on minimising cash burn where possible and maximising shareholder value in all our activities related to the GLE restructure. On behalf of the Board, I invite you to review the full report and thank you for your continued support during these difficult times. I look forward to answering any questions you may have at our Annual General Meeting in November 2017. Dr Lisa McIntyre Chair, People & Remuneration Committee 26 Silex Annual Report 2017 DIRECTORS’ REPORT The Directors present the Remuneration Report for the year ended 30 June 2017, outlining key aspects of our remuneration policy and framework, and remuneration awarded for the Company’s non-executive directors, executive directors and other executive key management personnel. The report contains the following sections: a) Directors and KMP disclosed in this report b) Remuneration governance c) Linking remuneration structure to company performance d) Voting and comments made at the Company’s 2016 Annual General Meeting e) Executive KMP remuneration structure f) g) Non-executive directors’ remuneration h) Directors’ and KMP remuneration i) Details of share-based compensation and bonuses j) Shares under option Link between FY2017 remuneration and performance a) Directors and KMP disclosed in this report The 2017 Remuneration Report has been prepared in accordance with the requirements of section 300A of the Corporations Act 2001 and accounting standard requirements and applies to KMP of the Company. KMP are defined as those persons who have authority and responsibility for planning, directing and controlling the activities of the Company. Name Position Non-executive and executive directors Dr L M McIntyre Dr M P Goldsworthy Mr R A R Lee Mr C D Wilks Other executive KMP Ms J E Ducie b) Remuneration governance Board oversight Chair and Non-executive director CEO/Managing Director – Executive director Non-executive director Non-executive director CFO/Company Secretary The Silex Board is ultimately responsible for ensuring that the Company’s remuneration structure is equitable and aligned with the long-term interests of shareholders. The Board and its advisors are independent of Management when making decisions affecting employee remuneration. 2727 Silex Annual Report 2017Silex Annual Report 2017DIRECTORS’ REPORT People & Remuneration Committee structure The People & Remuneration Committee is a committee of the Board currently comprised of a majority of independent non- executive directors. Its role is to make recommendations to the Board regarding the Company’s remuneration policies and practices, including those applicable to the Company’s KMP. Members of the People & Remuneration Committee were as follows: Committee members Dr L M McIntyre – Chair Mr R A R Lee Mr C D Wilks Committee secretary Number of meetings in FY2017 Ms A N Scott to 26 May 2017, Ms J E Ducie from 29 May 2017 2 Other individuals who regularly attended meetings Dr M P Goldsworthy – CEO/MD The role of the People & Remuneration Committee is to: • Review and recommend to the Board the appropriate remuneration policies and practices that are competitive and reasonable for the Company and its specific application to KMP, as well as the general application to all employees; • Determine remuneration levels of the CEO/MD and other KMP; • Manage the incentive plans which apply to executive directors and senior executives (the executive team), including key performance indicators and performance hurdles; and • Review and make recommendations to the Board regarding the remuneration of non-executive directors. The role and responsibilities of the People & Remuneration Committee are set out in the People & Remuneration Committee Charter, which is available on the Company’s website at www.silex.com.au/Corporate-Governance. Use of remuneration consultants The Company did not engage remuneration consultants during FY2017. The Company has previously engaged AON Hewitt to conduct a thorough review of KMP and Board remuneration and structure. The recommendations from the most recent review were fully implemented during FY2015 and FY2016. The Company continues to access market data and industry remuneration surveys and reports on a regular basis. c) Linking remuneration structure to company performance Remuneration strategy, policy and framework In determining executive KMP remuneration, the Board’s policy is based on the principle of aligning remuneration outcomes with the successful delivery of strategy whilst ensuring our remuneration practices are designed to attract, motivate and retain highly qualified and specialised personnel. High regard for contemporary market practice, good governance and alignment to changing business circumstances is maintained at all times. The Company aims to reward executive KMP with a level and mix of remuneration commensurate with their position and responsibilities within the Company that is competitive within the market in which they were recruited. Remuneration for executive KMP is reviewed annually and considers market data, insights into remuneration trends, the performance of the Company and the individual, and the broader economic and operating environment. This review is conducted in consultation with independent remuneration consultants where appropriate. 28 Silex Annual Report 2017DIRECTORS’ REPORT The executive KMP remuneration framework has two components: • Total fixed remuneration; and • At-risk incentives. Element Purpose Performance Metrics Potential Value Total Fixed Remuneration (TFR) At Risk Incentives – Short-term Incentive (STI) Provide competitive market salary, including superannuation and non- monetary benefits. Reward executive’s performance, representative of their contribution to achievement of Company outcomes, as well as functional Key Performance Indicators (KPIs). Reference to role, market and experience. Positioned at median market rate. Rewards are generally based on a percentage of the executive’s Total Fixed Remuneration (TFR). Linked to key performance hurdles that may include financial metrics such as operating cash flow and non- financial measures, such as commercial deliverables, and other specific operational and strategic deliverables for the Company. Long-term Incentives (LTI) were not offered to the CEO/MD or CFO/Company Secretary in FY2017. At this time, it has been determined that no LTIs will be granted for FY2018. Assessing performance and claw-back of remuneration The People & Remuneration Committee is responsible for assessing performance against KPIs and determining the incentive awards to be paid. To assist in this assessment, the Committee receives detailed reports on performance from management which are based on independently verifiable data such as financial measures, market information and data from independently run surveys. At all times, the Board has the discretion to make a final determination based on share price performance or other factors. In the unlikely event of serious misconduct or a material misstatement in the Company’s financial statements the Board can cancel or defer performance-based remuneration and may also claw back performance-based remuneration paid in previous financial years. d) Voting and comments made at the Company’s 2016 Annual General Meeting Silex Systems Limited received more than 97% of “yes” votes on its Remuneration Report for the 2016 financial year. e) Executive KMP remuneration structure For FY2017, executive KMP remuneration packages included a mix of total fixed remuneration (TFR) and short-term at-risk incentives. Total Fixed Remuneration (TFR) TFR is comprised of base salary, superannuation and packaged benefits. TFR is reviewed annually, or on promotion. It is benchmarked against market data for comparable roles in companies in a similar industry and with similar market capitalisation. The Committee aims to position executives at or near the median, with flexibility to take into account capability, experience, and value to the organisation and performance of the individual. For FY2017, the TFR for our CEO/MD remained unchanged. Following a full review of the remuneration package of our CFO/ Company Secretary, an increase of 12.65% to TFR was implemented from 1 July 2016. 2929 Silex Annual Report 2017Silex Annual Report 2017DIRECTORS’ REPORT Short-term Incentives (STI) Composition Assessment CEO/Managing Director CFO/Company Secretary Awards may be delivered in cash or Restricted Silex Systems Limited ordinary shares subject to shareholder approval. Awards are currently paid in cash. A portion of the payment may also be delivered in Restricted Silex Systems Limited ordinary shares. Award is subject to the achievement of agreed performance criteria comprising financial metrics and specific key strategic and commercial objectives.* Award is subject to the achievement of divisional and Company financial performance, supplemented by strategic and commercial measures specific to business unit deliverables.* Total Maximum Opportunity At Risk $200,000 Yes $125,000** Yes * For commercially sensitive reasons, short-term incentive targets for executive KMP are not published within this Remuneration Report, however the People & Remuneration Committee believe that all targets are set appropriately and align with shareholder expectations and execution of Company strategy. At all times, the Board has the discretion to make a final determination based on share price performance or other factors. ** Total Maximum Opportunity reduced to $100,000 for FY2018. Long-term Incentive (LTI) No long-term incentives were granted during FY2017 to the CEO/MD or CFO/Company Secretary. At the time of writing, it has been determined that no long-term incentives will be granted to the CEO/MD or CFO/Company Secretary during FY2018. f) Link between FY2017 remuneration and performance FY2017 performance and impact on remuneration Throughout FY2017, the Company’s primary focus was on the continued development and commercialisation of the SILEX technology and the Company remained vigilant with respect to its efforts to restructure exclusive licensee, GLE and to respond to challenging operating conditions in the nuclear industry. The STI performance criteria for FY2017 for the CEO/MD and CFO/Company Secretary were heavily focussed on the deliverables associated with the GLE restructure and the SILEX technology. Key performance criteria included achievement of a restructure of GLE, attainment of commercialisation and development milestones for the SILEX technology and delivery of financial rigour and operational cost reductions. A one-off STI of $12,500 was awarded in February 2017 to our CFO/Company Secretary reflecting her significant contribution to the due diligence being conducted by potential investors in GLE. Significant progress was made in all key performance areas, however being mindful of the difficulties faced by the Company, our CEO/MD forfeited his eligibility to receive a STI for FY2017 and our CFO/Company Secretary forfeited 90% of her eligibility to receive a STI for FY2017 ($12,500 awarded from total maximum opportunity of $125,000). 30 Silex Annual Report 2017DIRECTORS’ REPORT Statutory performance indicators We aim to align KMP remuneration to our strategic and business objectives and the creation of shareholder wealth. The below table shows measures of the Company’s financial performance over the last five years as required by the Corporations Act 2001. However, as a pre-revenue company, the below measures are generally not the measures used in determining the variable amounts of remuneration to be awarded to KMPs. As a consequence, there is no direct correlation between the statutory key performance measures and the variable remuneration awarded. Year ended 30 June 2013 2014 2015 2016 2017 EPS Cents (0.1) (17.3) (21.1) (2.0) (5.9) KMP STI award $ Share price at 30 June $ 140,000 76,000 322,400 211,000 12,500 2.20 1.16 0.46 0.31 0.37 Contractual arrangements with executive KMPs Component Total Fixed Remuneration CEO/MD $550,000 CFO/Company Secretary $325,000 Contract duration Ongoing Common Law Contract Ongoing Common Law Contract Notice by the individual or Company 6 months 6 months Termination of employment (without cause) Partial payment for pro-rata STI may be applicable at the Board’s discretion Partial payment for pro-rata STI may be applicable at the Board’s discretion Termination of employment (with cause) or by the individual STI/LTI not awarded STI/LTI not awarded g) Non-executive directors’ remuneration Non-executive directors receive a board fee. They do not receive performance-based pay or retirement allowances. The fees are exclusive of superannuation. With effect from 1 April 2016, all non-executive directors agreed to reduce their remuneration with the cessation of committee fees. The aggregate non-executive directors’ fees are reviewed periodically by the Board taking into account comparable roles and market data provided by an independent remuneration consultant. The non-executive director’s fees remain well within the limits of the shareholder approved aggregate directors fee pool maximum of $750,000, as approved by shareholders at the 2011 AGM and have in the aggregate significantly reduced from $465,905 in FY2014 to $260,000 in FY2017. The Silex Board currently comprises three non-executive directors and an executive director. The current Board size and composition is deemed appropriate in light of the current activities of the Company. The current fee structure is outlined below: Board Committee Chair 100,000 – Member 80,000 – Additional fees may be payable to non-executive directors should they undertake specific consulting projects for the Company in the areas of their expertise. 3131 Silex Annual Report 2017Silex Annual Report 2017DIRECTORS’ REPORT h) Directors’ and KMP remuneration The table below has been prepared in accordance with the requirements of the Corporations Act 2001 and relevant accounting regulations in Australia. This table details the remuneration for the Company’s KMP for the current and previous financial year. Fixed remuneration Cash salary and fees* $ Non- monetary benefits* $ Annual and Long service leave** $ Post- employment benefits – super- annuation $ Variable remuneration Other*** $ Cash bonus* $ Deferred rights# $ Total $ Name Year Executive directors Dr M P Goldsworthy 2017 2016 505,987 505,500 10,264 10,624 4,527 9,505 Non-executive directors (NED) Dr L M McIntyre Mr R A R Lee Mr C D Wilks Mr A M Stock (until 31/8/2015) 2017 2016 2017 2016 2017 2016 2017 2016 100,000 110,500 80,000 89,164 85,416 121,500 – 15,667 – – – – – – – – – – – – – – – – Other key management personnel and group executives 2017 2016 2017 2016 2017 2016 295,084 255,486 – 51,781 801,071 812,767 – – – 12,973 10,264 23,597 16,123 22,921 – (6,730) 20,650 25,696 Ms J E Ducie Mr C R Murray (until 31/8/2015) Total executive directors and other KMP Total NED remuneration Total KMP remuneration 34,916 34,908 9,500 10,498 7,600 8,471 8,115 11,543 – 1,488 29,916 29,908 – – – – – – – – – – – – – – 18,688 229,284 – – 555,694 140,000 24,725 725,262 – – – – – – – – – – – – – – – – 109,500 120,998 87,600 97,635 93,531 133,043 – 17,155 12,500 71,000 – 353,623 2,970 382,285 – – – – – – 305,996 909,317 64,832 – 12,500 83,504 229,284 211,000 27,695 1,413,543 2017 2016 265,416 336,831 2017 1,066,487 2016 1,149,598 – – – – 10,264 23,597 20,650 25,696 25,215 32,000 90,047 – – – – – 12,500 – – 290,631 368,831 – 1,199,948 115,504 229,284 211,000 27,695 1,782,374 * Short-term benefits as per Corporations Regulations 2M 3.03(1) Item 6. ** Other long-term benefits as per Corporations Regulations 2M 3.03(1) Item 8. *** Other includes termination payments made to Mr C R Murray. # Equity-settled share based payments as per Corporations Regulations 2M 3.03(1) Item 11. 32 Silex Annual Report 2017DIRECTORS’ REPORT The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name Fixed remuneration At risk – STI At risk – LTI * 2017 2016 2017 2016 2017 2016 Directors Dr L M McIntyre Dr M P Goldsworthy Mr R A R Lee Mr C D Wilks Mr A M Stock Other Executive KMP Ms J E Ducie Mr C R Murray 100.0% 100.0% 100.0% 100.0% N/A 100.0% 77.3% 100.0% 100.0% 100.0% N/A – N/A N/A N/A 96.5% N/A 80.6% 100.0% 3.5% N/A N/A 19.3% N/A N/A N/A 18.6% 0.0% N/A – N/A N/A N/A – N/A N/A 3.4% N/A N/A N/A 0.8% 0.0% *This relates to options and deferred shares issued on a LTI basis with the percentages based on the value of amounts expensed during the year. i) Details of share-based compensation and bonuses Options No grant of options affected remuneration in the current reporting period or will affect remuneration in a future reporting period. There were no options granted or any options exercised by any individual during FY2017 (or FY2016). STI bonuses For each STI award for the year ended 30 June 2017 (payable in the form of a cash bonus), the percentage of the bonus awarded or forfeited is set out below: 2017 Dr M P Goldsworthy Ms J E Ducie Total opportunity $ 200,000 125,000 Awarded % 0% 10% Forfeited % 100% 90% A one-off STI award of $12,500 was made in February 2017 to our CFO/Company Secretary reflecting the significant contribution made to facilitating the due diligence activities conducted by potential investors in GLE. LTI deferred rights and cash incentives No LTI’s were in place for the year ended 30 June 2017. 3333 Silex Annual Report 2017Silex Annual Report 2017 DIRECTORS’ REPORT Equity instruments held by KMP The below table shows the number of ordinary shares in the Company that were held during the financial year by KMP of the Company, including by entities related to them: 2017 Name Balance at the start of the year Received during the year on the exercise of options Received on vesting of rights to shares Other changes during the year Balance at the end of the year Directors of Silex Systems Limited Dr L M McIntyre Dr M P Goldsworthy Mr R A R Lee Mr C D Wilks Other Executive KMP Ms J E Ducie 48,230 5,979,055 – 2,814,021 3,759 – – – – – – – – – – – – – – – 48,230 5,979,055 – 2,814,021 3,759 The below table shows the number of options over ordinary shares in the Company that were held during the financial year by KMP of the Company, including by entities related to them: Balance at the start of the year Granted during the year as compen- sation Lapsed during the year Forfeited during the year Exercised during the year Balance at the end of the year Vested and exercisable at the end of the year Unvested 2017 Name Directors of Silex Systems Limited Dr M P Goldsworthy 1,102,207 Mr C D Wilks 367,035 Other Executive KMP Ms J E Ducie 60,000 – – – (1,102,207) (367,035) (60,000) – – – – – – – – – – – – – – – j) Shares under option There were no unissued ordinary shares of Silex Systems Limited under option at the date of this report. Securities Trading Policy The Silex Securities Trading Policy applies to all staff including KMP. It prohibits staff from buying or selling Silex securities at times when they are in possession of inside information. In addition, staff are only permitted to trade in Silex securities during certain open periods. The Silex Securities Trading Policy is available on the Company’s website at www.silex.com.au/Corporate-Governance. 34 Silex Annual Report 2017DIRECTORS’ REPORT 12. Company Secretary Ms J E Ducie BBus, CA, GAICD was appointed to the position of Company Secretary in 2010. Before joining Silex, Ms Ducie held a senior finance position in the Construction industry in the Middle East and prior to that worked as a Senior Associate with a Chartered Accounting Practice. 13. Indemnification and insurance of directors The Company has entered into agreements to indemnify the directors of the Company against all liabilities to persons (other than the Company or related body corporate) which arise out of the performance of their normal duties as directors or executive officers unless the liability relates to conduct involving lack of good faith. The Company has agreed to indemnify the directors and executive officers against all costs and expenses incurred in defending an action that falls within the scope of the indemnity. The Directors’ & Officers’ Liability Insurance provides cover against all costs and expenses involved in defending legal actions and any resulting payments arising from a liability to persons (other than the Company) incurred in their position as a director or executive officer unless the conduct involves a wilful breach of duty or an improper use of inside information or position to gain advantage. The insurance policy does not allow specific disclosure of the nature of the liabilities insured against or the premium paid under the policy. 14. Environmental regulation The parent entity is subject to the environmental and health and safety regulations applicable to tenants of the Lucas Heights Science and Technology Centre. The parent entity is also bound by the rules and regulations set out in the Australian Radiation Protection and Nuclear Safety Act, 1998, and is a licensee under the Act. To the best of the Directors’ knowledge, all environmental and health and safety regulatory requirements have been met and there have been no claims made during the financial year. 15. Non-audit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company and/or the consolidated entity are important. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for non-audit services provided during the year are set out below. The Board of Directors has considered the position and, in accordance with the advice received from the Audit Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity of the auditor • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. 3535 Silex Annual Report 2017Silex Annual Report 2017DIRECTORS’ REPORT During the year the following fees were paid or payable for non-audit services provided by the auditor of the parent entity, its related practices and non-related audit firms: Other assurance services PricewaterhouseCoopers Australian firm Total remuneration for other assurance services Other services Seminars and training courses Total remuneration for other services Total remuneration for non-audit services 2017 $ 2016 $ – – 582 582 582 – – – – – 16. Auditors PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. 17. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 37. This report is made in accordance with a resolution of the Directors. Dr M P Goldsworthy CEO/MD Sydney, 22 September 2017 Mr C D Wilks Director 36 Silex Annual Report 2017 DIRECTORS’ REPORT Auditor’s Independence Declaration As lead auditor for the audit of Silex Systems Limited for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Silex Systems Limited and the entities it controlled during the period. David Ronald Partner PricewaterhouseCoopers Sydney 22 September 2017 PricewaterhouseCoopers, ABN 52 780 433 757 One International Towers Sydney, Watermans Quay, Barangaroo NSW 2000 GPO BOX 2650, SYDNEY NSW 2001 T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation 3737 Silex Annual Report 2017Silex Annual Report 2017CORPORATE GOVERNANCE STATEMENT Silex Systems Limited (the Company) and the Board are committed to achieving and demonstrating the highest standards of corporate governance. The Company has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council. The 2017 Corporate Governance Statement is dated as at 30 June 2017 and reflects the corporate governance practices in place throughout the 2017 financial year. The 2017 Corporate Governance Statement was approved by the Board on 21 September 2017 and lodged with the ASX Appendix 4G, on 22 September 2017. A description of the Company's current corporate governance practices is set out in the Company's Corporate Governance Statement which can be viewed at www.silex.com.au/Corporate-Governance. 38 Silex Annual Report 2017CONCISE FINANCIAL REPORT for the year ended 30 June 2017 CONTENTS Financial statements Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial statements Directors’ declaration Independent auditor’s report to the members 40 41 42 43 44 45 50 51 Relationship of the concise financial report to the full financial report The concise financial report is an extract from the full financial report for the year ended 30 June 2017. The financial statements and specific disclosures included in the concise financial report have been derived from the full financial report. The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of Silex Systems Limited and its subsidiaries as the full financial report. Further financial information can be obtained from the full financial report. The full financial report and auditor’s report will be sent to members on request, free of charge. Please call +61 2 9704 8888 and request a copy of the full financial report (or email enquiries@silex.com.au). Alternatively, you can access both the full financial report and the concise report via the internet on our website: www.silex.com.au. SILEX SYSTEMS LIMITED & ITS SUBSIDIARIES ABN 69 003 372 067 CONSOLIDATED INCOME STATEMENT for the year ended 30 June 2017 Revenue from continuing operations Other income Research and development materials Development expenditure Finance costs Depreciation and amortisation expense Employee benefits expense Consultants and professional fees Printing, postage, freight, stationery and communications Rent, utilities and property outgoings Net foreign exchange losses Other expenses from continuing activities (Loss) before income tax expense Income tax expense Net (loss) from continuing operations Net profit from discontinued operations Net (loss) for the year Net (loss) is attributable to: Owners of Silex Systems Limited Earnings per share for (loss) from continuing operations attributable to the ordinary equity holders of the company Basic earnings per share Diluted earnings per share Earnings per share for (loss) attributable to the ordinary equity holders of the company Basic earnings per share Diluted earnings per share Note 2 3 2017 $ 1,365,646 940,847 (207,498) 2016 $ 1,617,655 1,467,828 (60,107) (6,668,102) (2,550,261) (11) (27,349) (55) (27,191) (3,676,747) (3,091,636) (914,782) (72,897) (411,461) (155,223) (383,912) (951,041) (99,574) (433,766) (143,418) (429,193) (10,211,489) (4,700,759) – – (10,211,489) (4,700,759) 4 92,558 (10,118,931) 1,303,871 (3,396,888) (10,118,931) (3,396,888) Cents Cents (6.0) (6.0) (5.9) (5.9) (2.8) (2.8) (2.0) (2.0) The above consolidated income statement should be read in conjunction with the accompanying notes. 40 Silex Annual Report 2017CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 June 2017 Net (loss) for the year Other comprehensive income Items that may be reclassified to profit or loss: Changes in the fair value of available-for-sale financial assets Exchange differences on translation of foreign operations Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: Owners of Silex Systems Limited Total comprehensive income for the year Total comprehensive income for the period attributable to owners of Silex Systems Limited arises from: Continuing operations Discontinued operations 2017 $ 2016 $ (10,118,931) (3,396,888) 5,716,932 (53,342) 5,663,590 (283,451) (51,181) (334,632) (4,455,341) (3,731,520) (4,455,341) (4,455,341) (3,731,520) (3,731,520) (10,211,489) (4,700,759) 5,756,148 (4,455,341) 969,239 (3,731,520) The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 4141 Silex Annual Report 2017Silex Annual Report 2017CONSOLIDATED BALANCE SHEET as at 30 June 2017 Note 30 June 2017 $ 30 June 2016 $ 1,876,319 40,801,837 1,842,593 44,520,749 1,581,746 49,700,328 3,466,276 54,748,350 4 – 350,000 44,520,749 55,098,350 7,284,502 82,996 – 7,367,498 51,888,247 1,624,251 80,001 1,796 1,706,048 56,804,398 1,846,984 632,103 2,479,087 – 2,479,087 116,892 116,892 2,595,979 49,292,268 1,799,049 472,837 2,271,886 678,379 2,950,265 104,728 104,728 3,054,993 53,749,405 231,750,374 231,752,170 15,653,086 9,989,496 (198,111,192) (187,992,261) 49,292,268 53,749,405 Assets Current assets Cash and cash equivalents Held to maturity investments – term deposits Trade and other receivables Assets classified as held for sale Total current assets Non-current assets Available-for-sale financial assets Property, plant and equipment Deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Provisions Liabilities associated with discontinued operations 4 Total current liabilities Non-current liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity The above consolidated balance sheet should be read in conjunction with the accompanying notes. 42 Silex Annual Report 2017CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 30 June 2017 Attributable to owners of Silex Systems Limited Contributed equity $ Reserves $ Accumulated losses $ Total $ Balance at 30 June 2015 231,753,076 10,296,433 (184,595,373) 57,454,136 Net (loss) for the year Other comprehensive income Total comprehensive income for the year – – – – (3,396,888) (334,632) – (3,396,888) (334,632) (334,632) (3,396,888) (3,731,520) Transactions with owners in their capacity as owners Employee shares and options – value of employee services Deferred tax recognised directly in equity – (906) (906) Balance at 30 June 2016 231,752,170 27,695 – 27,695 9,989,496 – – – 27,695 (906) 26,789 (187,992,261) 53,749,405 Net (loss) for the year Other comprehensive income Total comprehensive income for the year – – – – (10,118,931) 5,663,590 – (10,118,931) 5,663,590 5,663,590 (10,118,931) (4,455,341) Transactions with owners in their capacity as owners Deferred tax recognised directly in equity (1,796) (1,796) – – – – (1,796) (1,796) Balance at 30 June 2017 231,750,374 15,653,086 (198,111,192) 49,292,268 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 4343 Silex Annual Report 2017Silex Annual Report 2017 CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 30 June 2017 Cash flows from operating activities Receipts from customers and government grants (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest paid Net cash (outflows) from operating activities Cash flows from investing activities 2017 $ 2016 $ 2,672,348 5,467,115 (13,157,109) (13,835,072) 1,449,905 1,942,298 (11) (67) (9,034,867) (6,425,726) Proceeds from held to maturity investments – term deposits 8,898,491 4,473,123 Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds from sale of intangibles Net cash inflows from investing activities Cash flows from financing activities Net cash (outflows) from financing activities (31,906) 289,100 175,000 (42,608) 2,586,838 – 9,330,685 7,017,353 – – Net increase in cash and cash equivalents 295,818 591,627 Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash Cash and cash equivalents at end of the financial year* 1,581,746 (1,245) 1,876,319 987,777 2,342 1,581,746 *Held to maturity investments excluded from Cash and cash equivalents 40,801,837 49,700,328 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 44 Silex Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS 30 June 2017 Note 1 Segment information Segment revenue and segment result information provided to the Board of Directors for the Silex segment, the one reportable segment for the year ended 30 June 2017 is contained in the consolidated income statement. Segment assets were $44,468,260 at 30 June 2017 compared to $54,594,394 at 30 June 2016. Segment liabilities were $2,595,979 at 30 June 2017 compared to $2,376,614 at 30 June 2016. (i) Segment result The Board of Directors assess the performance of the operating segment based on a result that excludes exchange gains and losses on intercompany loans which eliminate on consolidation. Solar Systems and Translucent have been disclosed as discontinued operations and not as reportable segments. A reconciliation of the segment result to Net (loss) from continuing operations is provided as follows. Segment result Net (loss) before income tax from continuing operations Note 2 Revenue From continuing operations Interest income From discontinued operations (note 4) License fees Recoverable project costs from IQE Sale of goods Interest income 2017 $ (10,211,489) (10,211,489) 2016 $ (4,700,759) (4,700,759) 2017 $ 2016 $ 1,365,646 1,365,646 1,617,655 1,617,655 131,148 130,487 – 3,751 265,386 1,821,297 216,786 93,151 22,717 2,153,951 4545 Silex Annual Report 2017Silex Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS 30 June 2017 Note 3 Other income From continuing operations Research and development tax incentive Profit on sale of property, plant and equipment From discontinued operations (note 4) Research and development tax incentive Profit on sale of property, plant and equipment 2017 $ 2016 $ 940,847 1,459,095 – 8,733 940,847 1,467,828 41,058 114,000 155,058 2,002,079 1,340,055 3,342,134 (i) Research and development tax incentive Research and development tax incentive income of $981,905 (2016: $3,461,174) was recognised as Other income by the Company during the year. The Company has met the conditions of the tax incentive. 46 Silex Annual Report 2017NOTES TO THE FINANCIAL STATEMENTS 30 June 2017 Note 4 Discontinued operations and Assets held for sale In accordance with the continued implementation of the outcome of the Company’s major strategic review and resulting restructure, the Solar Systems and Translucent businesses have been disclosed as discontinued operations. On 30 July 2015, Silex announced a decision had been made to cease business operations at Solar Systems. During the year ended 30 June 2017, the residual assets held for sale were sold. On 15 September 2015, Silex announced that Translucent had signed a License and Assignment Agreement with IQE Plc with the technology commercialisation program subsequently transferred to IQE in late 2015. As a result, these two former business segments, net of cash, some receivables and Available- for-sale financial assets (shares in IQE) are reported as held for sale. A summary of the results of the discontinued operations is provided below. Revenue (note 2) Other income (note 3) Expenses Profit before income tax Income tax expense Profit after income tax of the discontinued operations Net cash inflows/(outflows) from operating activities Net cash inflows from investing activities Net cash inflows from the discontinued operations Property, plant and equipment Intangible assets Total assets of disposal group held for sale Trade and other payables Provisions Total Liabilities associated with discontinued operations 2017 $ 265,386 155,058 (327,886) 92,558 – 92,558 2017 $ 2016 $ 2,153,951 3,342,134 (4,192,214) 1,303,871 – 1,303,871 2016 $ 1,227,061 (2,114,844) 464,000 3,064,790 1,691,061 949,946 2017 $ 2016 $ – 175,000 – – 175,000 350,000 2017 $ – – – 2016 $ (303,819) (374,560) (678,379) 4747 Silex Annual Report 2017Silex Annual Report 2017NOTES TO THE FINANCIAL STATEMENTS 30 June 2017 Note 5 Contingent liabilities and commitments in accordance with Purchase and Sale Agreement Term Sheet (i) Contingent liabilities In April 2016, Silex signed a Non-Binding Purchase and Sale Agreement (PSA) Term Sheet with GENE Holdings (GENE), GE- Hitachi Nuclear Energy Americas LLC (GEHA) and General Electric Company (GE). In January 2017, the Term Sheet was extended to 31 March 2017 and in April 2017, the Term Sheet was further extended to 31 August 2017. The Term Sheet and extensions provide terms of a proposed Purchase and Sale Agreement (PSA) whereby Silex may acquire the shares owned by GENE and GEHA (together as ‘GEH’) representing 76% of the issued capital of GE-Hitachi Global Laser Enrichment LLC (GLE). Silex has the exclusive right to assign its rights to acquire GEH’s 76% equity stake in GLE in full or in part to new investors. Whilst the Term Sheet and extensions are principally Non-Binding, there are certain Binding Obligations. Silex has a Binding Funding Agreement Obligation and is required to make certain reimbursements to the Sellers (GEH). Expenses recorded in the current year amounted to $6,668,102. In addition, if a binding PSA is signed then Silex and any of its assignees are required to make additional funding payments to GEH. As per the Term Sheet signed in April 2016 and as extended, in the event that Silex elects to purchase the full 76% of GEH equity that is available for the sale and a binding PSA is executed, the maximum amount of additional funding payable by Silex (a contingent liability) is US$1,125,000 for the 15 months to 31 March 2017. At the current point in time, the timing of any outflow of funds is uncertain and subject to Silex signing a binding PSA and either fully or partially assigning its rights under the Term Sheet to new investors. Refer to Note 7 for details of the amendment and extension of the Term Sheet after year end. (ii) Commitments in accordance with Purchase and Sale Agreement Term Sheet Under the Term Sheet Binding Funding provisions, Silex is required to reimburse the Sellers for a further US$1,000,000 for expenditure for the 2 months to 31 August 2017. Note 6 Dividends No dividends were declared or paid during the year or in the prior year. 48 Silex Annual Report 2017NOTES TO THE FINANCIAL STATEMENTS 30 June 2017 Note 7 Events occurring after reporting date Between 30 June 2017 and the date of this report, the IQE Plc share price (LON:IQE) has increased considerably. Combined with movements in exchange rates, the value of the shares (disclosed as Available-for-sale financial assets) has increased by over approximately $4,500,000 since 30 June 2017. Gains or losses arising from changes in the fair value of shares classified as available-for-sale are recognised in other comprehensive income. The financial effects of the movements in fair value since 30 June 2017 will be recognised in the financial statements for the year ended 30 June 2018. As announced to the ASX on 1 September 2017, Silex and GE-Hitachi Nuclear Energy (GEH) reached agreement to further amend and extend the Term Sheet for the exclusive assignable option over GEH’s 76% interest in GLE. The amended Term Sheet, which will remain in force until either execution of a binding Purchase and Sales Agreement (PSA) or the termination of negotiations, contemplates Silex taking a majority interest in GLE. Pursuant to the amended Term Sheet Silex will continue to contribute 76% of the funding of GLE’s Wilmington, North Carolina operations in addition to funding Silex’s laser development activities at its Lucas Heights facility south of Sydney. This funding support for the 6 months ending 31 December 2017 is expected to be approximately $6.5 million. The consolidated entity is not aware of any other matters or circumstances which are not otherwise dealt with in the financial statements that have significantly or may significantly, affect the operations of the consolidated entity, the results of its operations or the state of the consolidated entity in subsequent years other than those referred to in this report. Note 8 Basis of preparation This concise financial report relates to the consolidated entity consisting of Silex Systems Limited and the entities it controlled at the end of, or during, the year ended 30 June 2017. The accounting policies have been consistently applied to all years presented, unless otherwise stated below. The financial statements in this report are presented in Australian dollars. 4949 Silex Annual Report 2017Silex Annual Report 2017DIRECTORS’ DECLARATION 30 June 2017 The directors declare that in their opinion, the concise financial report of the consolidated entity for the year ended 30 June 2017 as set out on pages 39 to 49 complies with Accounting Standard AASB 1039: Concise Financial Reports. The concise financial report is an extract from the full financial report for the year ended 30 June 2017. The financial statements and specific disclosures included in the concise financial report have been derived from the full financial report. The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial report, which is available on request. This declaration is made in accordance with a resolution of the directors. Dr M P Goldsworthy CEO/MD Mr C D Wilks Director Sydney, 22 September 2017 50 Silex Annual Report 2017 INDEPENDENT AUDITOR’S REPORT to the members of Silex Systems Limited Report on the audit of the concise financial report Our opinion In our opinion, the accompanying concise financial report of Silex Systems Limited (the Company) and its controlled entities (together, the Group) for the year ended 30 June 2017 complies with Australian Accounting Standard AASB 1039 Concise Financial Reports. What we have audited The Group concise financial report derived from the financial report of the Group for the year ended 30 June 2017 comprises: • the consolidated balance sheet as at 30 June 2017 • the consolidated income statement for the year then ended • the consolidated statement of comprehensive income for the year then ended • the consolidated statement of changes in equity for the year then ended • the consolidated statement of cash flows for the year then ended • the related notes. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the concise financial report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the concise financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Concise financial report The concise financial report does not contain all the disclosures required by the Australian Accounting Standards in the preparation of the financial report. Reading the concise financial report and the auditor’s report thereon, therefore, is not a substitute for reading the financial report and the auditor’s report thereon. PricewaterhouseCoopers, ABN 52 780 433 757 One International Towers Sydney, Watermans Quay, Barangaroo NSW 2000 GPO BOX 2650, SYDNEY NSW 2001 T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation 5151 Silex Annual Report 2017Silex Annual Report 2017INDEPENDENT AUDITOR’S REPORT to the members of Silex Systems Limited The financial report and our report thereon We expressed an unmodified audit opinion on the financial report in our report dated 22 September 2017. That report also includes: • The communication of key audit matters. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. Responsibilities of the directors for the concise financial report The directors are responsible for the preparation of the concise financial report in accordance with Accounting Standard AASB 1039 Concise Financial Reports, and the Corporations Act 2001, and for such internal control as the directors determine is necessary to enable the preparation of the concise financial report. Auditor’s responsibilities for the audit of the concise financial report Our responsibility is to express an opinion on whether the concise financial report, complies in all material respects, with AASB 1039 Concise Financial Reports based on our procedures which were conducted in accordance with Auditing Standard ASA 810 Engagements to Report on Summary Financial Statements. Report on the remuneration report The following paragraphs are copies from our report on the remuneration report of Silex Systems Limited for the year ended 30 June 2017. Our opinion on the remuneration report We have audited the remuneration report included in pages 26 to 34 of the directors’ report for the year ended 30 June 2017. In our opinion, the remuneration report of Silex Systems Limited for the year ended 30 June 2017 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers David Ronald Partner 52 Sydney 22 September 2017 Silex Annual Report 2017SHAREHOLDERS’ INFORMATION 30 June 2017 1. Information relating to shareholders as at 6 September 2017 (a) Distribution schedule 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001 and over Total number of holders of each class of security Voting rights – on a show of hands – on a poll Percentage of total holding held by the largest 20 holders Number of total holding less than a marketable parcel of shares Substantial shareholders Jardvan Pty Ltd Global X Management Company 1,978 2,370 786 1,093 163 6,390 52.77% 2,330 Ordinary shares 29,801,030 13,097,044 5353 Silex Annual Report 2017Silex Annual Report 2017 SHAREHOLDERS’ INFORMATION 30 June 2017 (b) Names of Twenty Largest Holders as at 6 September 2017 Name Jardvan Pty Ltd HSBC Custody Nominees (Australia) Limited Mr Paul Cozzi Majenta Holdings Pty Ltd Polly Pty Ltd J P Morgan Nominees Australia Limited Throvena Pty Ltd Citicorp Nominees Pty Limited Hamlac Pty Ltd Mr Christopher David Wilks Felson Holdings Pty Ltd Quintal Pty Ltd Sporran Lean Pty Ltd Old Digger Pty Ltd Houghton Waterville Pty Ltd Quadrangle Nominees Limited Mithena Holdings Pty Ltd Mr Xiangyang Wu Hillboi Nominees Pty Ltd Mr Luca Rotter + Ms Jane Louise Abbott Number of securities 29,801,030 15,686,219 7,870,000 5,703,923 4,073,863 3,448,670 2,978,203 2,804,055 2,525,937 2,405,070 2,251,000 2,002,952 1,749,999 1,629,865 1,000,000 847,245 817,139 808,870 779,295 775,000 Percentage held 17.48% 9.20% 4.62% 3.35% 2.39% 2.02% 1.75% 1.64% 1.48% 1.41% 1.32% 1.17% 1.03% 0.96% 0.59% 0.50% 0.48% 0.47% 0.46% 0.45% 89,958,335 52.77% 2. Interest of directors in shares as at 6 September 2017 Dr L M McIntyre Dr M P Goldsworthy Mr R A R Lee Mr C D Wilks Ordinary shares 48,230 5,979,055 – 2,814,021 Interest held Beneficially Personally/Beneficially N/A Personally/Beneficially 3. Securities subject to voluntary escrow as at 6 September 2017 As at 6 September 2017, no securities were subject to voluntary escrow. 4. Unquoted equity securities as at 6 September 2017 There were no unquoted equity securities at 6 September 2017. 54 Silex Annual Report 2017COMPANY DIRECTORY DIRECTORS Dr L M McIntyre – Chair Dr M P Goldsworthy – CEO/MD Mr R A R Lee Mr C D Wilks AUDIT COMMITTEE Mr R A R Lee – Chair Dr L M McIntyre Mr C D Wilks PEOPLE & REMUNERATION COMMITTEE Dr L M McIntyre – Chair Mr R A R Lee Mr C D Wilks COMPANY SECRETARY Ms J E Ducie REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS STOCK EXCHANGE Listed on the Australian Stock Exchange, Ticker: SLX Suite 8.01, Level 8 56 Clarence Street Sydney NSW 2000, Australia Listed on the OTCQX International, Ticker: SILXY Postal address: PO Box 364, Sydney NSW 2001, Australia AUDITORS 📞 +61 2 9704 8888 📠 +61 2 9704 8851 ✉ 💻 www.silex.com.au investor.relations@silex.com.au PricewaterhouseCoopers SOLICITORS Baker & McKenzie SHARE REGISTRY Computershare Registry Services Pty Limited Level 5, 115 Grenfell Street, Adelaide, South Australia 5000, Australia GPO Box 1903 Adelaide South Australia 5001, Australia 📞 Enquiries: Within Australia: 1300 556 161 Outside Australia: +61 8 8236 2300 ✉ web.queries@computershare.com.au 💻 www.computershare.com.au BANKERS Australia and New Zealand Banking Group Limited AMERICAN DEPOSITORY RECEIPTS (ADR) INFORMATION Silex Systems Limited’s ADRs may be purchased on the US OTCQX market. Details are as follows: Ratio: 1 ADR = 5 ordinary shares Symbol: SILXY CUSIP: 827046 10 3 9414F102 Exchange: OTCQX Country: Australia S i l e x A n n u a l R e p o r t 2 0 1 7 www.silex.com.au 

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